The Truth About the Sequester: Cuts Were Intentionally Inconvenient

by Lawrence Meyers | April 24, 2013 10:56 am

Let’s talk about the sequester … and let’s get right to the point: The entire concept of the sequester cuts was stupid to begin with — the result of politicians unable to cut back historic levels of spending on their own.

[1]The country has been running a trillion-dollar deficit since Obama took office, and yet neither side had the political will to do what’s right: make smart, judicious cuts to the budget.

Instead, Congress went through all these machinations to come up with a plan that didn’t actually decrease spending, but only decreased the rate of spending increases. Of all the ways to cut our country’s bloated and wasteful budget, what did they choose to do?

Furlough FAA air traffic controllers.

The result? We are now getting countless reports of delays and cancellations across the country’s airlines. Delta Air Lines (NYSE:DAL[2]), United Continental (NYSE:UAL[3]) and AMR Corp.‘s (PINK:AAMRQ[4]) American Airlines are all reporting service disruption.

But let’s consider why Congress chose this.

The result of such disruption is simple: People get mad. The airlines get mad. Business travelers get delayed. Business gets delayed.

I believe this was intentional. Of all the things that Congress could cut, they chose to make cuts that would inconvenience Americans. Because soon, Americans will complain. The airlines will complain. Businesses will complain.

Then, in a sweeping gesture to show their responsiveness to Americans, a bill will be rushed through to reinstate those FAA workers. It might be a bipartisan move to further enhance the Stockholm Syndrome most Americans are held captive by — believing politicians always work in the people’s interest. My guess is that Democrats will stall the bill to extract a concession from the spineless GOP Establishment.

But regardless, I expect this spending cut will go away, then the next inconvenience will show up in due course and it’ll happen all over again. In short, the cuts to the budget — again, cuts to the increase in the rate of spending — will be whittled away because Congress loves to spend our money.

And in case you still aren’t convinced, the sequester also cuts federal unemployment extension benefits by as much as 20%. I’m thinking that’ll make a few people angry, too.

Now, being that this is an investment article and not just a political rant, we must ask if there’s money to made here. The bad news is that I don’t think there is, which is all the more reason to be upset over this debacle.

Usually, stupid government policies create opportunity for savvy investors. In this case, you only have one real opportunity, and that’s if I’m dead wrong. If this nonsense continues and the airlines cannot workaround these cuts — meaning these delays and cancellations become a part of daily life — I think you’ll see a dropoff in leisure and possibly business travel. Such a chronic problem will make people think twice about traveling by airline.

So, the obvious move would be to short the airlines. The next move would be to short leisure stocks like theme parks — such as Cedar Fair (NYSE:FUN[5]) — and possibly hotel stocks. But that’s only to be done if the companies report revenue shortfalls specifically blaming these cuts.

In the end, I doubt that will be the case. Because Congress created a problem just so it could fix it.

The opinions contained in this column are solely those of the writer. As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities.

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